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Exceptional Circumstances, Attorneys Fees & Sanctions in Litigation

I’m proud to have my 2009 Baylor Law Review article used and cited in a recent court opinion in the Federal District Court in East Texas.

In Iris Connex, LLC v. Dell Inc., Judge Gilstrap used 35 U.S.C. § 285 to award Dell attorney’s fees for "exceptional circumstances" against the officer of Iris Connex, the parent company that filed for patent infringement. The original infringement petition alleged that Dell, Microsoft, Apple, and 15 other cellphone makers infringed by using front and rear facing cameras on their phones. As Judge Gilstrap put it, if the claims were actually as Iris Connex interpreted them they would essentially “hold a patent claiming the ubiquitous “selfie.”

After the merits of the case were heard and Iris Connex’s patent was held clearly unenforceable against the defendants, Dell reversed the tables by arguing that attorneys’ fees and sanctions were appropriate against Iris Connex, its counsel, and the sole officer of the company. Dell provided evidence that 1) the plaintiffs-now-defendants persisted in prosecuting an objectively unreasonable case, 2) that the real purpose in filing the litigation was to procure settlements, and 3) that they intentionally formed an empty shell company to allow the officers to profit from a win but to avoid any payments should the case be declared exceptional.

The Judge agreed, presenting logic that that the underlying characterization of Section 285 is akin to a tort, and thus can be brought against the owner or officer of a company leading the frivolous infringement action. He awarded fees under Section 285, also concluding that additional sanctions were warranted against opposing counsel pursuant to Rule 11:

.... The decision to create an empty shell and then hide its corporate parent until the eleventh hour (while at all times being sure any resulting monetary gains would flow to [the owner/officer] unimpeded) led to the judicial inefficiencies and delays recounted herein, which far exceed those present in an ordinary case.

The case could be a turning point in the fight against frivolous lawsuits brought by non-practicing entities using unscrupulous tactics to strong arm for settlements. These cases only serve to clog the arteries of America's patent system rather than encourage innovation, as it intended.